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Title: Are Entry Wages Really (Nominally) Flexible?

Citation Type: Conference Paper

Publication Year: 2016

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Abstract: No, entry wages simply appear flexible because of composition bias. Unemployed workers with flexible reservation wages are more likely to become re-employed than those with rigid reservation wages, so they are over-sampled in the observed wages of job finders. We document in the microdata that the wages of job finders appear to respond more to labor market conditions than the wages of job stayers, consistent with previous studies. In contrast, we show that the wages of both types of workers exhibit substantial downward nominal wage rigidity as measured using standard methods. We present a model in which employed and unemployed workers both face Calvo-style downward nominal wage rigidity. The estimated model produces substantially larger elasticities of the observed wages of job finders than of job stayers with respect to labor market conditions. Nonetheless, the model implies that the (unobserved) reservation wages of unemployed workers are nearly as rigid as the wages of employed workers. We therefore conclude that the labor market data are consistent with an important role for downward nominal wage rigidity among unemployed workers.

Url: http://www-personal.umich.edu/~montesj/Ehrlich_Hall_Montes_Entry_Wages_Aug2016.pdf

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Authors: Ehrlich, Gabriel; Montes, Joshua; Hall, Matthew

Conference Name: CESifo Conference 2016

Publisher Location: Munich, Germany

Data Collections: IPUMS CPS

Topics: Labor Force and Occupational Structure, Other

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